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Dutch energy market highlights for Q1 2015

In this article, Sia Partners has selected the most relevant Dutch energy market news and developments of the first quarter of 2015 for you.

Gas supply issues

Over the past months the issues related to gas production in Groningen have attracted a lot of attention. Although minister Kamp officially apologized on behalf of the government for structurally ignoring the region's safety concerns, the debate continues and the amount of gas that will be extracted in current and coming years is still uncertain. In our article on this topic we explore the options available to the Dutch government on how to move forward from this point onward.

Also, on a European level, policy makers are deciding how to best secure their gas supply now that relations with Russia have become increasingly strained. This is illustrated by the proposed introduction of a European 'Energy Union' to collectively negotiate supply contracts. However, Gasunie's announcement of a EUR 200 million gas conversion installation, which enables the use of (Russian) gas with higher qualities in our current infrastructure, reveals that the Netherlands is keeping all options open for its gas supply. In addition, Kamp is opposed to the creation of an Energy Union and prefers to focus on a properly functioning energy market.

Oil price stability

The second subject that has maintained a lot of attention worldwide regards the price of oil, the world's most-used commodity. Analysts and institutes are tumbling over each other with market predictions and expectations - Clingendael for example claims that the low price will remain for some time - but the fact is that the price per barrel remained largely stable within the 50-60 dollar bandwidth during the last quarter. The technological breakthroughs in producing shale and tight oil, combined with reduced global economic growth have strongly contributed to the low oil price. In turn, the low price caused storage capacity in the US to become scarce. Shell stated there is only 2% overproduction in oil, but in a year's time it has been able to halve the oil price. The company expects the price to remain between 60 and 70 dollar in the short term, and to stabilize around 90 dollar per barrel in the mid to long term.

Depressed power market

Furthermore, most power producers continued to struggle to stay in business, as power prices remained low and gas prices remained high last quarter. Essent's holding company RWE saw its profit over 2014 decrease by 45% compared to 2013 and was forced to take austerity measures in terms of employment of its personnel. Eneco also saw a reduction in its profit, and had to face the bankruptcy of its subsidiary 'EP trade support' and the subsequent claim of Air Liquide. Although Eneco appealed to the court's decision of providing a guarantee of EUR 805 million, it looks like Eneco will be forced to fulfill its onerous contractual obligations. To complete the top three of Dutch energy suppliers, Nuon - part of Vattenfall - saw around 100.000 customers leave in 2014 and had to take significant losses on its assets. But in 2015, it expects to stop this outflow, when its new pricing structure should pay off. More on this and other new pricing mechanisms in our article on this topic.

Meanwhile, the debate on the division of roles in the energy market is not yet finished. A decision of the Dutch Supreme Court regarding the unbundling of integrated energy companies was delayed twice last quarter, and is now expected end of June 2015. The case primarily affects Eneco and Delta, which haven't fully split yet. Delta's CEO stated that unbundling would mean the end of Delta Energie. On the short term Delta is trying to improve its credit position. In this light the company has found a buyer for its waste division Indaver: Belgian logistics and distribution company Katoen Natie.

Energy transition & grid balancing

New figures on the energy transition in the Netherlands show that there is still a long way to go unfortunately. The Netherlands is committed to using 14% of renewable energy by 2020, but this currently amounts to only 4.5%. Of all EU member states only the UK is further away from its target. The decision to create 6000MW of additional wind capacity onshore - as recorded in the 'Energieakkoord' - has come under discussion in the provincial elections, mainly for reasons of visual pollution. Conversely, setting up offshore wind parks has become easier, as today an enabling bill will most likely be passed by the Dutch House of Representatives. Regardless of whether additional wind capacity will be constructed onshore or offshore, the increase in intermittent energy generation capacity will have significant implications for both TSOs and market parties as the challenge to keep the grid balanced increases. The Western European market is already experiencing this due to the high wind and solar capacity in Germany. Our article on this topic describes the actions the involved parties could undertake to prevent the grid from getting blown out of balance.